Analysis

Listed law firms prove resilient to market turbulence

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13

Is the legal profession the new gold?

Listed law firms have proven collectively immune to the sell-off that took place in stock markets this month amid fears of a wave of post-pandemic inflation.

Indeed, the Legal Cheek listed law firm fund — a basket of the six main listed law firms in the UK — is actually up fractionally by 1% this month, suggesting that some investors are using the legal profession as a hedge against volatility.

With the UK interest rate at a record low of 0.1%, and inflation surging last month to 1.5%, eroding the value of money sitting in bank accounts, savers are looking for ways to protect their wealth.

Some are turning to gold, which has risen by around 4% this month, while others are focusing on consumer brands with pricing power like Unilever, whose share price is up a similar amount over recent weeks. The drift upwards in listed law firms’ values seems to place them in the same risk-off category.

Looking more closely the picture within the Legal Cheek listed law firm fund is actually quite mixed. On one hand you have DWF, whose share price has jumped by a whopping 28% this month on the back of stronger than expected financial results, while on the other there’s Rosenblatt Group, down 12%, albeit after a very strong recent run up to this point.

With the exception of Gateley, which has risen by 11% this month, the other firms in the fund — Knights, Ince and Keystone — have held pretty steady within single percentage point fluctuation ranges during this choppy period for markets.

The 2021 Legal Cheek Firms Most List

Listed law firms are a pretty new thing, with Gateley the first one to go public six years ago after the Legal Services Act got rid of the old rule stating that only lawyers could own law firms, so it’s still a bit early to say what their precise role in the investing ecosystem is. But the steady, countercyclical nature of law would make firms which practise it a natural safe haven.

Certainly that has proved the case so far for the Legal Cheek listed law firm fund, which has ticked up nicely from an original investment of £600 in early January this year to just under £800 today. But past volatility of law firm shares, particularly in the wake of the Covid-19 outbreak last spring when several cratered dramatically, suggests the sector has some way to go before it can be relied upon to generate steady returns.

Still, the signs this year will be encouraging for the likes of Irwin Mitchell and Mishcon de Reya, as they explore the possibility of going public.

The Legal Cheek listed law firm fund

DWF Group: £116.63 fund value (107p per share)
Knights Group Holdings: £96.14 fund value (418p per share)
The Ince Group: £149 fund value (78p per share)
Keystone Law Group: £108.80 (640p per share)
Gateley Holdings: £125.37 (199p per share)
Rosenblatt Group Holdings: £193.20 (120p per share)
Total fund value: £789.14 (up from an original total of £600 invested in January this year)

Read previous instalments in our share column here. I’ll be back next month with an update on how the legal fund is getting on.

This series is in no way intended to amount to financial and/or investment advice. And remember, shares can go up as well down and professional advice should always be sought before investing.

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13 Comments

I don't recognise a single firm in this article

Cool but there’s a reason that no good firms even entertain the possibility of going public.

IB tho

If it works for Goldman, Evercore, Greenhill, Perella…

Duty of care -> Breach of that duty -> Damages

OK so you think law firms and investment banks have the same business structure.

IB tho

The advisory-only banks are similar – fees paid by clients and no balance sheet work

Stop it

Classic pump and dump tactic from LC – we won’t play along.

top nq candidat

Anybody know the NQ whack at Paddle & Cocks LLP Solicitors?

I dream of working there, their funds practice is meant to be second to none

Oar & Co

$190k for a first year. Next question?

Touker

Law firms are one of the most illiquid stocks available on the market. It makes absolutely no sense to buy in because they are not growth or dividend stocks. Even most ETFs are safer bets that would earn you more money.

New investor

Please explain why they are not dividend stocks? Surely if they make a profit, they pay dividends. Taken as a whole the above mentioned firms are paying a dividend of 4-6%. Am I missing something?

Touker

They do pay dividends but they’re extremely low dividends. For example, Rosenblatt paid around 3p dividend per share and DWF are going to pay around 4.5p dividend per share for the year (from what I can see). Compare to decent blue chip stocks like Apple ($2.62 for the year) and AT&T ($2.08) and you’ll see that you’re incurring huge opportunity cost if you’re investing in law firms to get dividends.

Because of the fact they’re listed on AIM and because of the fundamental nature of law firms as a business model, they are extremely unlikely to record significant growth in share price either. You might as well put your money into ETFs as even the standard ETFs have better annual growth than most of those law firm stocks.

Touker to be true

The average dividend yield for FTSE all share over the past 30 years is 3.55%. So these forms are comparable to or better than that.

You’re miles off the mark with the yields you quote for Apple and AT&T. Apple’s yield last year was 0.7%.

Oh, and DWF is listed on the main market, not AIM.

Apart from that everything you say is spot on

Touker

I was deliberately referring to Apple’s dividends paid out in monetary terms (not yield %) over the last year. If you look at and add up Apple’s dividend history paid out since 2020, it will add to a number slightly better than my quoted number (which I quickly plucked from Google). I can also partly verify this as I have held Apple shares since mid-2020. AT&T is the same.

Yes apologies, DWF is listed on Main Market but I meant to refer to law firms generally in that statement, who are mostly AIM-listed. I still don’t believe law firms are great additions to any stock portfolios.

Sir FTSE 250

Disagree – see eg Gordon Dadds – raised cash and deployed it for M&A. The public law firm model allows firms to build and buy like any other growth business.

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